In business and management, the term ‘performance’ has many connotations. As a result, two related but also different terms are often mixed up. These are performance appraisal and performance management.

As their names suggest, both terms relate to performance, specifically evaluating employee performance in a company.

But what are the differences between performance appraisal and performance management? Keep reading to find out.

What is performance management?

Performance management is one of the functions of the HR team. It’s mainly concerned with measuring and improving employees’ performance in a company.

HR activities such as employee engagement, training, and development fall under the broad performance management umbrella.

In HR, performance management is a process. It involves the HR manager or team setting up performance expectations, working with managers to monitor employee performance and progress.

Larger, employee-driven organizations offer employee training and coaching.

The main reason companies focus on performance management is to create a performance-driven culture. In this culture, not only do employees understand their roles, but also have the opportunity to develop and grow.

What is a performance appraisal?

A performance appraisal is type of review, carried out to evaluate an employee’s performance within a team and the company.

Performance appraisals, also known as performance reviews or employee reviews, take into account an employee’s skills, achievements, and growth.

Although there are many types of performance appraisals, the common factor between them is that companies conduct them on a regular basis.

Some companies may choose to conduct performance reviews on a quarterly basis, bi-annual basis, or annual basis.

Performance reviews are often closely tied to quarterly or annual employee bonuses.

Performance management vs performance appraisal: What are the differences?

Both performance management and performance appraisals overlap in some areas. But they are clearly different from each other.

Performance appraisals form a major part of performance management. They are a tool to conducting performance management within a company.

Let’s look at where performance management and performance appraisals overlap and diverge.

Performance management vs performance appraisal: Objective

The objective for both performance management and employee appraisals is simple: Measure and improve an employee’s performance.

Performance management also works on two levels: Company or corporate performance management (CPM) and employee or people performance management (PPM).

Sometimes referred to as strategic performance management (SPM) or enterprise performance management (EPM), CPM is about improving the performance of the entire company.

In other words, it’s the strategy designed to drive the company forward by aligning employees with the company’s strategy and working to achieve that strategy.

Performance management vs performance appraisal: Person conducting it

The person charged with managing and conducting performance management across the company isn’t the same person conducting a performance appraisal.

Performance management is the role of the HR team alongside the company’s management.

On the other hand, employee appraisals are carried out by each team’s or department’s manager. They may or may not work with the HR team.

To conduct a performance review, a manager will sit with each team member to discuss their most recent performance.

With performance appraisals, managers sit with each team member to discuss their performance over the past several months and their future plans.

Performance management vs performance appraisal: Approach 

Performance appraisals review an employee’s performance over a past period of time. This could be a month, 3 months, 6 months, or a year.

With performance appraisals, managers and team leaders should compare the results of different appraisals to see if an employee is truly performing better or not.

Meanwhile, performance management focuses on future performance and how to improve employee performance in the coming months or year.

Performance management also includes finding ways to equip employees to continually perform better. This can include providing training and development opportunities, using training KPIs to see if employees are going through the material and using it,…etc.

Performance management vs performance appraisal: Frequency and duration 

A major difference between performance management vs performance appraisals is the frequency.

Companies often carry out employee appraisals once every 3, 6, or 12 months. The goal is usually to determine if employees are entitled to receive a bonus.

On the other hand, performance management involves creating a strategy and implementing it through performance appraisals and other tools.

Companies will often revise their performance management strategy every few years.

Performance management vs performance appraisal: Tools used

The tools used to implement performance management vs performance appraisals are different.

To conduct a performance appraisal, the company or HR team needs to choose the most suitable type of performance review for each team or department.

Some companies may have different performance appraisals for different teams.

For example, one of the most common types of appraisals is the 360-degree appraisal. However, some managers may choose to conduct a project-based review for certain team members or specific roles like a project manager role.

For people performance management, tools may include employee rewards and recognition programs, self-development plans, appraisals, performance targets, among others.  

In performance management, specifically corporate performance management, tools may include KPIs, scorecards, analytics, performance appraisals, benchmarking, enterprise risk management, among other tools.

Manage performance across your organization with Tawzef

Understanding the differences between performance management vs performance appraisals is key to deciding on your next steps.

If you don’t conduct employee appraisals in your company and across your teams, there are many reasons why you should.

Performance appraisals are important for employees, managers, the company as a whole. They help employees track their performance and they help managers see their team members’ performance individually and compared to others.

Appraisals also help HR and management decide when an employee is up for promotion, a reward, or a bonus. Or all of those.

If you don’t have appraisals, you can’t just decide ‘we’ll have appraisals starting next quarter.’ You need a performance management strategy or system.

Here is a 5-step process to creating a performance management strategy in your company.

Step 1: Conduct a gap analysis

Step 2: Conduct a strengths, weaknesses, opportunities, and threats (SWOT) analysis

Step 3: Create a business and HR strategy, vision, and mission

Step 4: Create job descriptions for the different roles in your company

Step 5: Create your performance management system

However, performing these steps and creating a performance management system requires strong business and HR expertise, time, and money.

Many small and medium-sized businesses often operate on a one-HR-person team. This one-person-team will neither have the time nor the ability to create a performance management strategy and implement it across your organization.

That’s where Tawzef can help you. Our team specializes in helping businesses across various industries create HR strategies and performance management systems to empower these businesses and help them grow.

If you need help creating a performance management strategy or an HR strategy or both, get in touch and we’d be happy to help.